– US markets came back from their holiday and immediately went into sell mode before recovering from around midday. That initial move was in stark contrast to the improved sentiment in Asia and Europe and Nick Parson from NAB’s Economics and Strategy team sums up the divergence nicely in a morning note. Parsons wrote:
There’s a clear trend developing in global equity markets where expectations for monetary stimulus in Europe (ex-Switzerland of course!) are driving stocks higher whilst the prospect, or possibility, of Fed tightening combined with worries over corporate earnings are depressing US share values. Every North American market has seen year-to-date losses – the DJIA is down another 0.42% today – whilst France and Germany are both up over 4% since January 1st.
– Of course, pretty much everyone expects the ECB to move tomorrow night our time and the euro is lower again overnight (1.1549) in anticipation of sovereign bond buying. If it’s possible, all the hype and expectation may actually work against the success of the ECB plan as it is going to be difficult for Draghi to exceed market expectations of QE of around 650-700 billion euro. As a result, it may be difficult to maintain current stock market ebullience. Equally, much is already priced into the EURUSD rate at 1.1549 and a number of banks are now saying that valuations might be stretched. Westpac’s FX Strategy team summarised this mood nicely, writing this morning that while they are still short euro with a macro and technical bias for lower levels. But their “model signals muddy the waters on EUR somewhat. Our model focuses on valuations, which suggest EUR might have overshot.”
Tomorrow night could be another huge one for markets.
– Anyway, at the close, the scoreboard in the US reads:
- Dow Jones flat at 17,512
- Nasdaq up 0.44%, 21 points to 4,655
- S&P up 0.13%, 3 points to 2,022
– European markets were higher again, as noted above, as QE expectations build. Equally however, the release of the German ZEW sentiment survey which, while still poor (48.4 Economic Sentiment, 22.4 current situation), was much better than expected. The EU version of the survey printed 45.2, a big leap from last month’s 35.8 – also mildly positive. But the release of German PPI for December saw prices fall 0.7% during the month, taking the year-on-year rate to -1.7% from -0.9% in November. QE is almost guaranteed on that number alone.
At the close:
- London(FTSE 100) up 0.52%, 34 points to 6,620
- Frankfurt (DAX) up 0.14%, 15 points to 10,257
- Paris (CAC) up 1.16%, 51 points to 4,446
- Milan (FTSEMIB) up 0.92%, 178 points to 19,659
- Madrid (IBEX) up 1.25%, 127 points at 10,284
– Locally, the impact is that ASX SPI 200 futures are indicating a rise of 26 points for the market today. But the reality is that for whatever reason, the Australian market is lagging, with the past two days’ performance an underperformance to stocks in our region. Certainly the Chinese GDP data lifted the market from the doldrums but its performance has not been strong. Hopefully today is a better day.
– In Asia yesterday, a combination of a seriously weak yen, which has risen to 118.73, and the Chinese data being weak enough to lead to heightened expectations of more PBOC easing, saw stocks across the entire region rally yesterday. The Nikkei climbed 2.07% to 17,366, the Hang Seng jumped 0.9% and the Shanghai Composite was up 1.82% to 3,173. Today we have a BoJ monetary policy statement and press conference but otherwise it’s a light data calendar.
– On bond markets, US 10s dipped 3 points to 1.81% while European 10s were marginally higher. German Bunds finished at 0.4% while UK Gilts ended trade at 1.54%.
– On currency markets, positions are being put in place for tomorrow night’s ECB announcement with the euro lower again. USDJPY looks like it is expecting something from the BoJ today as well, up near 119. The Aussie is also pressured with the US dollar strength but at 0.8174 is around where it was at the close of Australian trade yesterday. The pound is at 1.5149.
– On commodity markets, oil has tanked once again down 5% to $46.65. Copper lost 1% as well and sits at $2.59 a pound while all the expectation – and related uncertainty that causes – has kicked gold higher once more. It is up 1.3% to $1,293 an ounce. On the bulks, March iron ore has dipped again, losing 47 cents a tonne to $66.93 while Newcastle coal for the same month sits at $58.75, up a solid $2.05.
On the data front, the BoJ and US President Barack Obama’s State of the Union address are the highlights today. Tonight we get some insight into the last BoE meeting with the release of the vote cut and then the BoC releases a monetary policy report tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
QBE was in the news yesterday when it announced the sale of its US agency subsidiary as part of an ongoing program to simplify its overall business and clean up the balance sheet.
The stock is also on the chart traders’ radar, having returned to a well-established zone of support last week. The top end of this support consists of the base of a triangle pattern that has been developing for over a year. However, there are a couple of other spike lows just under the triangle base that extend the support zone. The lowest of these at $9.86 was made two years ago.
A clear break below this support would be a bearish development. This would make the triangle look like a typical continuation pattern that represents a pause in an ongoing downtrend. The other possibility though, is that QBE survives the support level yet again. This would have chart traders eyeing off the chance of a return to the triangle resistance line as a possible selling level.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC